Dollar Steady Near 3.06 Shekels as Markets Await Fed Rate Decision

The Israeli foreign exchange market opened with slight gains, with the US dollar strengthening by 0.1% to trade at 3.062 shekels. The euro and British pound also edged up by 0.1%, reaching 3.479 and 4.068 shekels respectively. Globally, the dollar remained stable against major currencies, trading at 1.137 dollars per euro and 163.76 yen in Japan, while the dollar index stood at 101.37 points.

Market participants are closely monitoring geopolitical developments in Iran amid a temporary ceasefire despite Tehran denying reports of a ten-day truce with the US. The pause in US airstrikes has eased oil prices and inflation concerns, though US government bond yields have only moderately declined compared to other markets overnight. Chris Weston, head of research at Pepperstone, noted that "lack of significant demand at the short end of the yield curve helped support the dollar."

The US Federal Reserve begins its two-day policy meeting today, with a rate decision expected tomorrow under new Chair Kevin Warsh. Rising oil prices and escalating Middle East tensions have increased speculation of a rate hike this week. CME's FedWatch tool shows a 37.9% probability of a 25 basis point increase, up from 16% last week, and nearly 81% chance of a hike in September. ANZ Bank's head of FX research, Mahjabin Zaman, said a Fed rate hike would likely boost the dollar further, especially against low-yield currencies like the Japanese yen and Swiss franc.

Investors will also watch upcoming US Q2 growth data and the Core PCE inflation index to assess the economy's health. Meanwhile, the Bank of England and Bank of Japan are expected to keep rates unchanged later this week, maintaining cautious inflation stances. After the yen hit a 40-year low against the dollar last week, the Bank of Japan may signal possible future rate hikes to support the currency, though without committing to timing or pace. Matthew Ryan of Ebury suggested the BOJ would need a hawkish tone to convince markets of its inflation and yen support commitment.

In a Reuters NEXT interview, Japanese Finance Minister Setsuko Katayama reiterated Tokyo's readiness to intervene in FX markets if necessary and indicated Washington shares this approach. She declined to comment on potential joint US-Japan yen purchases and noted that a weaker yen has both advantages and disadvantages for Japan's economy.